Correlation Between Ultra-short Term and Small Capitalization
Can any of the company-specific risk be diversified away by investing in both Ultra-short Term and Small Capitalization at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Ultra-short Term and Small Capitalization into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ultra Short Term Fixed and Small Capitalization Portfolio, you can compare the effects of market volatilities on Ultra-short Term and Small Capitalization and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Ultra-short Term with a short position of Small Capitalization. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ultra-short Term and Small Capitalization.
Diversification Opportunities for Ultra-short Term and Small Capitalization
0.93 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Ultra-short and Small is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Ultra Short Term Fixed and Small Capitalization Portfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Capitalization and Ultra-short Term is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Ultra Short Term Fixed are associated (or correlated) with Small Capitalization. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Small Capitalization has no effect on the direction of Ultra-short Term i.e., Ultra-short Term and Small Capitalization go up and down completely randomly.
Pair Corralation between Ultra-short Term and Small Capitalization
Assuming the 90 days horizon Ultra-short Term is expected to generate 9.15 times less return on investment than Small Capitalization. But when comparing it to its historical volatility, Ultra Short Term Fixed is 23.24 times less risky than Small Capitalization. It trades about 0.41 of its potential returns per unit of risk. Small Capitalization Portfolio is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest 703.00 in Small Capitalization Portfolio on June 9, 2025 and sell it today you would earn a total of 53.00 from holding Small Capitalization Portfolio or generate 7.54% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Ultra Short Term Fixed vs. Small Capitalization Portfolio
Performance |
| Timeline |
| Ultra Short Term |
| Small Capitalization |
Ultra-short Term and Small Capitalization Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ultra-short Term and Small Capitalization
The main advantage of trading using opposite Ultra-short Term and Small Capitalization positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ultra-short Term position performs unexpectedly, Small Capitalization can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Small Capitalization will offset losses from the drop in Small Capitalization's long position.| Ultra-short Term vs. Sp Smallcap 600 | Ultra-short Term vs. Qs Small Capitalization | Ultra-short Term vs. Goldman Sachs Small | Ultra-short Term vs. Smallcap Fund Fka |
Check out your portfolio center.Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.
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